Trading on trends: How the ordering of historical volume predicts Chinese stock returns?

Yihan Li

International Review of Financial Analysis, 2024, vol. 95, issue PC

Abstract: In examining return prediction strategies in China’s stock market, we find that the chronological return ordering is ineffective within a one-month window. To overcome this limitation, we introduce a more robust measure, named chronological turnover ordering (CTO3), calculated using turnover in the past three months. As anticipated, CTO3 demonstrates statistically significant predictability for returns, indicating a tendency among investors to overvalue stocks with high recent and low distant turnover. Bivariate portfolio analysis reveals that CTO3 performs more effectively during high-sentiment periods and on stocks with high investor attention. This research contributes significantly to understanding investor behavior and market dynamics in China.

Keywords: Ordering effect; Trading volume; Extrapolative beliefs; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G12 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004502

DOI: 10.1016/j.irfa.2024.103518

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